Limit the City's Risk

To limit City risk, the Consortium recommended a plan that featured:

Axia NetMedia Corporation (Axia), an experienced open fiber network manager, seemed willing to invest over $30 million to build, own, and operate a citywide open Fiber to the Premise (FTTP) network available to serve every residence, business, school, medical facility, non-profit, and government facility in Palo Alto.

Note: the tipping point.Axia NetMedia, the proposed investor in the network, requested a ‘City commitment’ to subscribe to $3.4 million in network services annually to which the City was unwilling to commit. As negotiations continued, it appeared the investor would accept other network use commitments from commercial and residential customers in lieu of a City commitment, but the investor did not wish to be saddled with the full responsibility for gathering substitute commitments. On March 14, 2009, Axia withdrew from negotiations.

A Special Purpose Entity (SPE), the owner and operator of the citywide open FTTP active Ethernet network, would have been a wholly-owned subsidiary of Axia.

Our dark fiber ace in the hole. The City of Palo Alto Utility, with community encouragement, built a 41-mile dark fiber network for an investment of about $2 million in 1997. Commercial licensees use this network, as does the City. The City may negotiate a sub-operating agreement with the SPE to pass management responsibility for the commercial licensees and the dark fibers they use to the SPE.

The City may enter into “rights of use” agreements with the SPE which permits the SPE to use specific City facilities such as surplus dark fibers. The City retains ownership of the fibers, yet its use by the SPE enables both network construction cost and construction time to be reduced. These benefits are valued by the SPE.

The Fiber to the Home (FTTH) Trial in the Community Center neighborhood from 2001 to 2005 proved very successful. When the trial was completed, some fiber was abandoned in place. A “right to use” this abandoned trial fiber may be granted to the SPE so that it may consider offering data services sooner rather than later to the more than 300 residences passed by this fiber.

Each time a City request for proposal (RFP) is issued that involves municipal services that could utilize the FTTP network, the City will agree to use its best effort to seek bids from service providers utilizing the SPE FTTP network. Other providers utilizing other networks will be eligible to bid just as before, increasing competition for the City’s business.

Specified permit fees may be waived by the City.

The SPE may value some combination of these rights and agreements at more than $13 million. The City’s General Fund will remain untouched by this project, but cost savings by the City with the effective use of the resulting FTTP network could add to the General Fund, as will increases in normal City revenues that can be attributed to this leading-edge network.

The City will retain reversionary rights over the dark fiber and other assets that it owns. These rights may be exercised at any time prior to the expiration of any agreement with the SPE in the event certain specified circumstances occur.

At the conclusion of the agreements between the City and the SPE, anticipated to be 25 years hence, the City will have the right to exercise an option to regain the use of its own assets and to acquire the entire citywide Palo Alto lit FTTP network for $1.

This innovative Palo Alto Fiber to the Premise Model is designed to limit the City’s liability and financial risk while, at the same time, the entire Palo Alto community will have early and continuous access to a powerful open FTTP active Ethernet network conforming to high municipal operating standards.